Wednesday, February 28, 2007

Yesterday was really something! The Dow ended down 416 for the day. By far the largest I remember seeing. It really is interesting to see just how quickly the markets can move when people are scared. I mean, the market cap/value of companies was decreasing immensely. It was all sparked by a correction in a red hot Chinese market.

The big debate is whether this is a buying point, or are we headed for rough seas? My advice is wait it out. The way we traded today (Up 50, down 50, up 100, down to 0, up to 90, back to up 50 for the close) shows a lot of volatility out there.

If you are itching to buy, rotate into the defensive stocks. Altria(MO), Proctor and Gamble(PG), Coca Cola (KO), Chevron(CVX). Jim Cramer is pushing Caterpillar (CAT) right now pretty hard, as it has taken a hit with construction down. They have a huge stock buyback and a nice dividend. I see it as somewhat dead money until the second half of the year, but hey, slow moving dividend payers are way better than what we saw yesterday!!!

Saturday, February 24, 2007

The markets finished the week on a down note. You get the feel that many money managers are getting a little nervous with this market. It seems that we've had a few "distribution days" in the last week. To me, this is a sign that the broad markets are reaching a top. On a positive note, there is still no sign that the Fed is going to raise rates, at least until June. People are starting to question Ben Bernanke's optimism, which is something that is unusual for any Fed Chairman.

This just shows you what type of market we are in. I think no one truly knows where we are headed. The media is saying we're at a top, while the people who really know whats going on is not saying that. Back in 2001, when we saw a major drop, it was different. The media said you could do no wrong in the market. The only mistake was being in a value stock, and not growth.

My opinion is that we could see a 5 to 10 percent correction, but not based on substance, but rather fear. Lets take a look at what has happened over the course of the past year. We saw a major rise in the Dow, taking it to an all-time high. The Nasdaq has done well, but has lagged in performance compared to the Dow or S&P. This to me is important. It shows that real corporate profits are strong. We have seen consolidation of smaller companies into larger, more efficient companies, and this has allowed profits to increase. The Nasdaq, on the other hand, is still volitile and full of stocks with risk. Technology companies are still being created all the time, but people aren't falling for the old trick again. People are only willing to put their money into real profits, not the prospect of profits as was done in the 1990's. Those who are growth hungry are moving into growth companies that are making real profits. For example, Google, Apple, Garmin, Research in Motion. The days of the 75 P/E ratio are gone for the best companies.

The question remains, though, can the large companies continue to grow their profits. The answer is yes. All these profits have been made in the midst of a down real estate and homebuilding market. Fuel prices have increased almost double. Security and terrorism issues have cost companies money through extra time and money spent. And through all this, profits are growing. So what will happen when the real estate market comes back? Maybe some money will leave the stock market, but I think that it will drive the overall economy. Fuel prices will stabilize. We will be out of Iraq within a couple of years. There are factors arising that will allow our economy to stabilize on a Macro level.

We do have the issue of jobs being exported overseas, and the growth of the BRIC (Brazil, Russia, India, China) countries. This to me is helping corporate profits, because they are saving money on labor. If people in the US are mad about that, they should invest in these companies and make up the money there. Its not that difficult. I think a growing global economy is good for everyone. Trade will be opened up, goods will be cheaper, and less people will be living in poverty and the standard of living will increase in all these countries.

In recent weeks, I have been taking a keen interest in "lazy portfolios." Basically these are run by index funds. Vanguard has a nice family of funds. These funds have beat the major indexes, and can be owned for very little in expense fees.

TXU corp., a utility company I've been looking at, is going to be bought out by a private equity group. Too bad I missed out on that, as it rose 10 points after hours yesterday.

There has been rumors of a buyout at Capital One Finance, which is one of my holdings. We shall see if anything materializes. It would have to be someone big to do it (B of A, Citi, or JP) probably.

Friday, February 2, 2007

Interesting week in the market. My portfolio has a whole posted fairly solid results; in the neighborhood of 1.5 percent, which is in line with the S&P 500 return for the week.

Oil prices continued to creep back up. One of my holdings, Chevron Corp, reported earnings this morning. They missed by about 9%, but the stock traded almost flat following a 3% gain yesterday. This happened because the street was happy with the year that the big oil companies had in terms of profits. The all-time profits were due to increasing demand, and record oil prices. In contrast, Chevron was hurt in the past quarter by the lagging price of Natural Gas.

Chevron is one of my favorite companies for a couple of reasons. To begin, they are one of the most diversified oil companies with resources all over the world. They are well invested in both upstream and downstream activities. They made a great discovery in the gulf of mexico this year that could provide massive amounts of new oil. One reason that is often overlooked, but why I like them is that they don't take a bad rap from the public like ExxonMobil does. Exxon gets blasted in the media because of the amounts of their profits. Chevron often avoids this negative press.

One negative on Chevron would be that they are based in California, which is the most progressive state in the union. They are the most likely to become subject to new taxes against oil companies to promote alternative energies.

Overall, I like Chevron. Nice dividend. Growing faster that most oil companies. Demand for oil is not going away. If we return to peak oil prices, Chevron should add an additional 10 percent.

Another observation: Portfolio holding Garmin LTD, upped nicely today on heavy trading. This could be due to a few things, but I look to the correlation of this Sunday's game. Garmin is running their first ever Super Bowl ad, and has been getting a lot of positive press for it. They teamed up with Fallon of Minneapolis who is well known for creating winning ad campaigns.

I still think we are due for a 5 to 7 percent correction in the markets, but either way, I'm holding strong that this is a strong market for the next year or so.

Thursday, February 1, 2007

This is my first post for this blog. I'll try to update it as much as possible and would welcome any feedback to any post. Interesting day in the market today. Dow up 52. Nas 4.5, and S&P up 7.7. I think people were still buying from yesterday's decision by the Fed to not change interest rates. Once the decision came out, the Dow instantly shot up about 100 pts. I see that oil prices are gradually working their way back up. This is probably being pushed by the colder weather across much of the US. Although weather shouldn't affect today's prices, do keep in mind that almost move in a stock is a pre-pricing for future events. Rarely does a stock move based on something in the past. Wall Street is all about the future.I've set up a CAPS account on the Motley Fool Website. This allows you to rate stocks in our own portfolio and you get points based on how much you beat or lose to the S&P 500 return. Kind of interesting. There is a lot of info about stocks and investing on that site, and I would recommend trying it. As I go along, I'd like to share my best resources as a continue to find them. My basic staple website, is Yahoo Finance. It is just a great resource. Current, up to date quotes and news, and a ton of info about every stock. Also some very nice market commentary through various columns.

About My Blog

Welcome to "In the Know." Here I discuss trends in the market, and how I think investors can profit from them. I'll discuss specific stocks, sectors, and economic/political trends.

I'm a student of the markets and am constantly looking for new ways to gain an edge, but for the most part, I'm a value guy. I think you have to be flexible to be a successful investor, but discipline is by far the most important factor.

Disclaimer: The views expressed on this site are purely opinions of the author and should not be taken as investment advice. The author is not a registered financial advisor, and provides only his own commentary. The author disclaims all liability in any investment purchases made based on information gathered at this site, or through any link provided by this site. Readers should be aware that investments are subject to loss in value, and the author recommends consulting an investment professional before taking any action.